Pressured still - the Australian dollar needs to hold 0.7560

Market Analysis /
Greg McKenna / 13 Jun 2018

The Aussie dollar isn't exactly on its uppers, that would require a fall toward 74 cents. But the chances of that happening seem to have risen after another failure above 76 cents in the past 10 hours seems to reinforce that the bears have the hot hand at the moment. 

At 0.7571 the AUDUSD is down about half a percent since 7 am yesterday morning. That weakness was a little worse than the moves we saw on Euro, CAD, or Kiwi. Why that's the case isn't apparent exactly. 

Sure the NAB business survey was lower - but it was still strong in any month other than the one following records. The housing finance data though, it does suggest further consumer retrenchment is on the cards. And that makes the release of the Westpac consumer sentiment data this morning more interesting than normal from a forex perspective. 

Obviously, everyone will be watching the headline index. But I'd suggest looking as well at the sub-index of family finances and unemployment expectations to get a sense of the underlying mood of consumers in this low wages growth, high debt, and falling house price world we have in Australia at the moment. 

All of the above brings me back to what I wrote yesterday, "we are nearing a resolution very soon. Either a firm break higher or a resumption of the downtrend which is likely to see the Aussie head down toward 74 cents, perhaps even into the 71 cent region".

With the Fed out tonight, with US CPI hitting a 6year high of 2.8%, with a second-quarter rebound in US growth underway, and with the Taylor Rule suggesting that Fed Funds should be somewhere up near 4%, it seems more likely than not that we get a hawkish hike from the FOMC tonight. 

That, along with the fact the BAML survey revealed international investors are putting money to work in US equities and are again overweight, suggests the USD is likely to retain a bid. 

Which in turn increases the chance that the Euro's move back to 1.1839 ( just a smidge under the 38.2% retracement level of the last leg lower) is as good as it will get. A break of 1.1720/30 - it's at 1.1745 now - would signal Euro is heading lower. 

That would likely drag the Aussie down too. And it would diminish any impact of the improvement in Australian economic data prints and the CESI for Australia being one of only two poisitive prints currently - along with the USA. 

Consumer sentiment, 1.1730 for the Euro, and the Fed tomorrow morning. They're the ones to watch for the Aussie dollar.  And of course governor Lowe's speech at 1.20 pm is impotant as well. 

To the charts then andthe Aussie looks biased lower. But it does appear to have some decent support around 0.7522 at the bottom of this uptrend if 0.7560 gives way, and then 0.7512 is the 61.8% retracement of the recent rally to last week's highs. Should 12 break then 0.7475  is back in the frame. 

Topside there is resistance at 0.7595 and 0.7620/23. 

Click on me, I'll expand
Click on me, I'll expand

Have a great day's trading.

Greg McKenna

Chief Market Strategist

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